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Articles (36) 

Patriot Transportation Is a Forgotten Spinoff

Company is thinly traded, undervalued, consistently profitable

July 18, 2017 | About:

Patriot Transportation (PATI) is a top-tier regional tank truck hauler serving the southeastern U.S. FRP Holdings (NASDAQ:FRPH) spun off Patriot Transportation in January 2015. It began as a premiere bulk tank carrier in 1962 under the name Florida Rock and Tank Lines. Florida Rock and Tank Lines continues its growth as an industry leader in the Southeastern U.S., transporting petroleum and other liquid and dry bulk commodities in tank trucks.

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Patriot Transportation operates under one subsidiary, Florida Rock and Tank Line. It specializes in hauling petroleum (82% of revenue), dry bulk and other liquid commodities (18% of revenue).

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The tank lines transportation business is highly fragmented. This attribute offers exciting growth opportunities with its strong balance sheet, free cash flow, clean capital structure and committed bank financing to benefit from industry consolidation. Ranked No. 12 in the U.S. by revenue per the 2013 Bulk Transporter's Gross Revenue Report, Patriot is No. 1 of the top three tank truck haulers in the markets in which it generates 66% of its revenues.

Current valuation

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Patriot Transportation is a value outlier based on asset reproduction and earnings power. They have 21 terminals, nine satellite locations, 488 tractors and 563 trailers located in Florida, Georgia, North Carolina, South Carolina, Alabama and Tennessee. Terminals owned are in Florida (Jacksonville, Panama City, Pensacola, Tampa, White Springs), Georgia (Albany, Augusta, Bainbridge, Columbus, Doraville, Macon) and Tennessee (Chattanooga, Knoxville).

Additionally, the company owns 468 tractors and 561 tank trailers. During fiscal 2016, the company purchased 78 new tractors and 24 trailers. Further, its current financial position reports $6.87 million cash, $6.44 million current account receivables, for a total current asset value of $17.95 million. Gross PPE of $102.19 million or net value of $41. 38 million. The total equity value is $45.82 million or $13.89 per share with no debt.

The family of founder John D. Baker owns 37% of Patriot Transportation. Edward L. Baker 5.14%, John D. Baker (chairman) 13.39%, Thompson S. Baker (president and CEO) 5.69% and Edward L. Baker (chairman emeritus) 1.227%. John D. Baker purchased 10,000 shares in June for $179,662 or 17.97 per share. In 2016 he purchased 6,233 shares for $121,712 or 19.53 per share.

Value institutions holding shares at higher prices are Royce Associates, PVAM Perlus Microcap Fund, T. Rowe Price Associates, Charles D. Hyman, Willis Investment Counsel, Rutabaga Capital, Cove Street and Teton Advisors.

Nine of its top 10 largest volume customers were serviced over 10 consecutive years. During the past five years annual revenues grew 54.60% with these loyal customers. This is supported by consistent double-digit return on capital, TTM ROIC is 12.17%. Trading near tangible book value recorded below fair market value, EV/EBIT = 7.18, and EV/revenue of .45.

Historical value improvements

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The stock is down -18% over the past 52 weeks. Off its 52-week high of $27.32 versus the $17.95 closing price on July 14. Revenues decreased slightly year over year. But profits reported with growing net cash, equity and reduction of liabilities and enterprise value to revenue and EBITDA.

Trucking industry comparisons (18 companies)

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I ran a screen for companies in the trucking industry and excluded OTC listed. My final but not perfect industry peer group is 18 companies. Many competitors are smaller private and not reviewed.

After doing the industry comparisons, Patriot Transportation is a strong value outlier with the these attributes. Ranked highest for financial strength, lowest for EV/EBITDA at 3. Percentage above historical low, P/Book, EV/Sales, EV/EBITDA ranked lowest. Patriot has the smallest market capitalization, enterprise value and short as a percentage of the float. The negative 18% stock return ranked third lowest in the group.

Risks

  • Thinly traded with no Wall Street coverage.
  • Loss of major customers from under biding by a larger competitor or bankruptcy.
  • Lack of Wall Street coverage.
  • A continued labor shortage of available qualified drivers.
  • The increasing costs of worker's health care, fuel prices, insurance, equipment, taxes, tolls and regulations.
  • Reduced demand for hauling petroleum products from overcapacity or industry / economic trends.
  • Liabilities from environmental costs related to the hazardous materials delivered.

Opportunity

  • Future acquisitions coupled with Wall Street coverage and continued profitable growth.

Disclosure: Long Patriot Transportation.


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